TRIS Rating affirms the company rating of Sansiri PLC (SIRI) and the ratings of its existing senior unsecured debentures at “BBB+”. At the same time, TRIS Rating assigns the rating of “BBB+” to SIRI’s proposed issue of up to Bt2,000 million in senior unsecured debentures. The proceeds from the new debentures will be used to fund SIRI’s business operation.
The ratings reflect SIRI’s leading position and proven track record in the residential property development industry, well-recognized condominium and housing brands, and diverse product portfolio. These strengths are partially offset by SIRI’s expected higher financial leverage, which will lower cash flow protection amid its plan to launch several condominium projects under its own brands and through joint ventures (JVs). The ratings also take into consideration the relatively high level of household debts nationwide, coupled with the slowdown in the domestic economy, which may impact the demand in the residential property market in the short to medium term.
SIRI is one of the leading property developers in Thailand. At the end of June 2017, the company had around 100 residential projects in its portfolio, worth a total of around Bt160,000 million. The portfolio comprised condominium (52% of the total portfolio value), single-detached house (SDH, 41%), and townhouse (7%) projects. The average unit price across the portfolio was Bt5.6 million. As of June 2017, SIRI had a backlog worth Bt6,800 million (excluding backlog under the JV projects worth Bt23,000 million) and unsold units (including built and un-built units) worth Bt46,000 million (excluding unsold units under the JV projects worth Bt14,000 million) available for sale.
SIRI’s presales during the first six months of 2017 grew by 16% year-on-year (y-o-y) to Bt14,861 million. Presales from condominium projects under the JV supported the growth. SIRI’s revenue during the first half of 2017 slightly dropped by 1% y-o-y to Bt15,517 million. Revenue from residential sales decreased by 8% y-o-y, while revenue from business management under the JV projects increased sharply. SIRI’s revenue during the remainder of 2017 is partly secured by units in the backlog worth Bt5,700 million. A number of backlog under the JV projects will support the revenue growth from business management. Under TRIS Rating’s base case scenario, SIRI’s revenue over the next three years is forecast to be around Bt30,000 million per annum. Revenue contribution from residential sales will decrease to 70%-75% of total revenue, while the revenue from business management under the JV projects will constitute a greater portion from 2017 onwards.
SIRI’s gross profit margin declined to 29% of total revenue in 2015 and 31% during 2016 through the first six months of 2017 from 33%-34% during 2010-2014 as the company launched marketing campaign in several residential projects in order to speed up the sales of the remaining finished units. Selling, general, and administrative (SG&A) expenses improved to 17% of total revenue during 2015 through the first half of 2017 from 20%-24% during 2011-2014. SIRI’s operating profit margin (as measured by operating income before depreciation and amortization as a percentage of sales) was around 13%-15% during 2014 through the first six months of 2017. Its net profit margin stood at 8%-10% of total revenue during 2015 through the first half of 2017. Going forward, SIRI’s operating profit margin and net profit margin should hold at the current levels over the next three years, despite the intense competition due to a sluggish demand in residential property market and a thin profit margin from business management under the JV projects.
The company’s debt to capitalization ratio (including proportionate debt from the JVs) increased to 62% as of June 2017, from 59% as of December 2016 and 57% as of December 2015. The interest-bearing debt to earnings before interest, tax, depreciation, and amortization (EBITDA) ratio stayed at 9 times as of June 2017, up from 6-7 times during 2014-2016. TRIS Rating’s base case scenario assumes SIRI’s financial leverage and the interest-bearing debt to EBITDA ratio over the next three years will be higher than the current level due to its business expansion through its own and the JV projects. However, the debt to capitalization ratio should not exceed 60% and the interest-bearing debt to EBITDA ratio should be less than 6-7 times.
SIRI’s liquidity profile is acceptable. The ratio of the funds from operations (FFO) to total debt was 9%-12% during 2015 through the first six months of 2017, up from 8% in 2014 and 4% in 2013. The company mainly uses debentures and project loans to finance its projects. At the end of June 2017, SIRI had Bt3,454 million in cash and Bt43,000 million in undrawn committed credit facilities. Its FFO is expected to be at least Bt2,500 million per annum. SIRI’s sources of funds should be sufficient to cover its debt repayment of around Bt18,000 million over the next 12 months.
Rating Outlook
The “stable” outlook reflects the expectation that SIRI will be able to deliver the units in the backlog as scheduled. The operating profit margin and net profit margin should be maintained at the current levels over the next three years. SIRI is expected to keep its debt to capitalization ratio (including proportionate debt from JVs) below 60% and the interest-bearing debt to EBITDA ratio should be lower than 6-7 times.
SIRI’s ratings and/or outlook could be revised upward should its financial profile improve, as its interest-bearing debt to EBITDA ratio stays below 5 times on a sustainable basis. Also, the ratio of FFO to total debt should increase to 14%-15%. On the contrary, the ratings and/or outlook could be revised downward if SIRI’s financial performance is significantly worse than the target levels.
Sansiri PLC (SIRI)
Company Rating: BBB+
Issue Ratings:
SIRI181A: Bt3,000 million senior unsecured debentures due 2018 BBB+
SIRI185A: Bt1,000 million senior unsecured debentures due 2018 BBB+
SIRI188A: Bt2,000 million senior unsecured debentures due 2018 BBB+
SIRI194A: Bt1,000 million senior unsecured debentures due 2019 BBB+
SIRI194B: Bt1,000 million senior unsecured debentures due 2019 BBB+
SIRI197A: Bt1,000 million senior unsecured debentures due 2019 BBB+
SIRI19OA: Bt1,000 million senior unsecured debentures due 2019 BBB+
SIRI204A: Bt2,000 million senior unsecured debentures due 2020 BBB+
SIRI206A: Bt2,000 million senior unsecured debentures due 2020 BBB+
Up to Bt2,000 million senior unsecured debentures due within 5 years BBB+
Rating Outlook: Stable